House of Representatives Committees

Chapter 3 Future role for forestry and forest products

3.1This inquiry’s terms of reference direct the Committee to inquire into
‘the current and future prospects of the Australian forestry industry’. This
chapter will briefly look at some of the overarching trends that will shape the
market in which the future forestry industry will operate. Two main trends will
be discussed:

Demand from paper,
construction and other sectors; and

The impacts of, and
policy responses to, climate change.

Demand from paper, construction and other sectors

3.2A number of submissions to the inquiry note the expectation that
Australia’s population will continue to increase over the coming decades. This
is expected to heighten demand for timber and wood-products, and is often cited
as proof of forestry’s positive future prospects.[1]
These submissions also note that environmental concerns[2]
and changing social trends[3] will contribute to
increased demand for the forestry industry’s products in future. Demand is also
expected to continue to grow in the Asia-Pacific region, providing increasing
export opportunities.[4]

Current consumption

3.3According to the Department of Agriculture, Fisheries and Forestry, the
average national consumption of wood products is 22 million cubic metres per
year. By comparison, around 27 million cubic metres of logs are harvested in
Australia each year.[5] However, Australia still
imports a large amount of wood products, and has a trade deficit in wood
products – in 2010 totalling $1.9 billion. According to Australia’s Forests
at a Glance 2011 Australia imported $4.2 billion worth of wood products in
2010 and exported $2.3 billion worth in the same year.[6]

Figure 3.1 Forestry at a glance 2010

Source Australia’s
Forests at a Glance 2011, ABARES, p.3.

Future demand

3.4Whilst the Committee acknowledges that it is difficult to predict demand
into the distant future, the forestry industry nevertheless needs to have an
appreciation of the future opportunities both domestically and overseas. Questions
about possible future demand were raised throughout the course of the inquiry.
However, there was little concrete evidence on which to base predictions about
the future or on which to make the
long-term investment decisions necessary in the forestry industry.

3.5Evidence suggested that the Australian forestry industry would be
increasingly unable to meet the future domestic wood demand. For example, in
relation to sawlogs, figures supplied by the Forest Growers CEO Forum[7]
suggest that demand for sawlogs could reach 8 million cubic metres by 2040.
This would be an increase of over 2 million cubic metres compared to today’s
demand, and well beyond projected Australian supply.[8]
In relation to plantation softwood – both sawlogs and
pulpwood – the Department of Agriculture, Fisheries and Forestry suggests that
the potential supply ‘is not expected to change significantly from now to 2050
or beyond’. This is, in part, ‘likely to lead to a steadily increasing
dependence on imported timber products and/or substitution for more
carbon-intensive materials.’[9]

3.6Other evidence, however, contests this view. According to the joint
submission from Environment Tasmania, the Wilderness Society and the Australian
Conservation Foundation:

Plantations now produce the vast majority of Australia’s
processed wood products. Native forest sawmilling has been reduced to a remnant
market-share. We have enough plantation wood supply to meet all our domestic
timber needs and to develop a strong export oriented timber industry. Hardwood
plantations can now entirely replace native forest woodchip production.[10]

3.7However, were this contention true, it would still rely on the substitution
of plantation wood for all wood currently sourced from native forests. As
discussed in Chapter 4, there is considerable disagreement about whether this
is in fact practical.

3.8There has also been a trend of the increasing reservation of forests,
which has diminished the available supply of wood from native forests. This has
an impact on the ability of Australia’s forestry industry to meet timber and
wood product demand.

3.9In addition to the question of future supply and demand, there is a
policy question of whether – or to what extent – Australia should be
‘self-sufficient’ in timber and wood-products. The National Forest Policy
Statement does not set out self-sufficiency as a goal; rather, it speaks of an
‘internationally competitive and ecologically sustainable wood production and
wood products industries’ which will provide ‘national and regional economic
benefits.’[11] Current policy does not
explicitly aim for
self-sufficiency, but rather emphasises the potential for growth in the
industry. The website for the Department of Agriculture, Fisheries and Forestry
states that one of its goals is ‘to assist our forestry industry to grow,
improve and capitalise on new opportunities while protecting the environment
and contributing to the prosperity and quality of life in rural and regional
Australia.’[12] Self sufficiency would
see the timber industry make a greater contribution to the construction industry,
as demand rises for building materials with low embedded energy, such as
timber. It would also reduce reliance on wood sourced from foreign sources,
which are often less regulated and environmentally damaging.

3.10A number of submissions to the inquiry have supported Australia becoming
self-sufficient in at least some parts of the wood supply.[13]
This would obviously support additional income and jobs, particularly in
regional and rural areas. Other arguments for self-sufficiency have also been
made, such as removing additional carbon from the atmosphere.

Committee Comment

3.11The Committee believes that the forestry industry needs greater
certainty about possible demand and supply scenarios in the decades to come. The
forestry industry has one of the longest ‘lead times’ in the Australian
economy. It will benefit from a better picture about how the market might look
in the future and the policy needed in this area.

3.12In addition to giving the industry better information about future
opportunities, more information about possible future demand and supply
scenarios will encourage investment by individuals and institutions, will
support the expansion of farm forestry, and will give governments a sounder
basis for making policy. It will also provide a sounder basis for making
decisions about the plantation base, and for planning plantation expansion.

3.13The Australian Government – along with state and territory governments –
should consider whether Australia should aim for wood supply self-sufficiency.

Recommendation 1

The Committee recommends the Australian Government, through
the COAG Standing Council on Primary Industries, lead a process to assess and
publicly report on likely wood demand and supply scenarios over the longer term
(at least the next forty years). This should be completed within twelve
months.

Recommendation 2

The Committee recommends the Australian Government, through
the COAG Standing Council on Primary Industries, lead a process to consider
and publicly report on whether Australia should aim for wood supply
‘self-sufficiency’.

Climate change

3.16Whilst the terms of reference for this inquiry do not explicitly refer
to climate change, a significant amount of evidence to the Committee focussed
on how climate change will affect the forestry industry. This section will
discuss how climate change will affect forestry, as well as the Carbon Farming
Initiative, which has the potential to support forestry as an activity that
removes carbon from the atmosphere and stores it in trees.

3.17As frequently noted in submissions and hearings, climate change is both
a potential threat to existing forests and an opportunity for the forestry
industry. The Department of Climate Change and Energy Efficiency submitted
that:

Australia’s forests are vulnerable to climate change,
particularly the effects of increased atmospheric CO2 concentrations, rising
temperatures, changed water availability and increased incidence of bushfires.
Natural forest systems have some capacity to adapt to these changes. There is
the capacity to improve the resilience of intensively managed forests and
plantations through changed silvicultural practices.[14]

And

...forest industries are expected to benefit from carbon
pricing. Over time, putting a price on carbon could be expected to increase
demand for wood products by making more emission-intensive goods and
technologies relatively more expensive.

Carbon credits for increases in reforestation could
potentially provide an extra boost for forest industries. The Government’s
Carbon Farming Initiative will enable crediting of eligible abatement that is
not covered under the carbon price mechanism.[15]

3.18The increasing demand for wood – as a material with lower ‘embodied
energy’ – will need to be considered in future demand and supply scenarios, as
discussed above. This represents a considerable opportunity for growth in the
forestry industry.

3.19Climate change will also drive demand for timber and wood products
through recognition of the carbon stored in trees. However, there is currently
insufficient consensus about the carbon that is stored in products made from
harvested trees. Robust national standards in this area would need to rely on
collecting and analysing national average data about the product-destination
and lifetime of wood, as well as waste decomposition factors.[16]
Despite this complexity, it is necessary work.

3.20Finally, there is a major opportunity for the forestry industry to
produce renewable energy from wood waste products. However, recent policy
change in this area could prevent some of these opportunities being taken up.
This is discussed in Chapter 7.

Carbon Farming Initiative

3.21The CFI is an Australian Government initiative to increase carbon
sequestration through various farm or land based activities, including planting
trees. The CFI legislation has passed both Houses of Parliament and is expected
to come into force during 2012.

3.22The entire CFI arrangements are not discussed in detail in this report.
For a detailed discussion of the CFI legislation, please see the report of the Senate
Standing Committees on Environment and Communications into the following three
Bills:

3.23Whilst reforestation is a valid CFI activity, a number of submissions to
the inquiry called for the CFI to be amended so that it would recognise the
carbon stored in ‘working forests’.[17] Evidence identified the requirements
of additionality and permanence as current barriers to recognition of
plantations and farm forestry under the CFI.

Additionality

3.24For an activity to be covered by the CFI, it must pass the
‘additionality test’. According to the Explanatory Memorandum for the CFI
legislation:

The purpose of the additionality test is to ensure that
credits are only issued for abatement that would not normally have occurred
and, therefore, provides a genuine environmental benefit.

The Government’s intention is that this test will enable crediting of
activities that improve agricultural productivity or have environmental
co-benefits, but which have not been widely adopted.[18]

3.25As pointed out by the Department of Climate Change and Energy
Efficiency:

The additionality requirement ensures that credits represent
real gains to the atmosphere. Most commercial forestry activities are common practice
and occur in the absence of a carbon offsets scheme. These activities are
unlikely to be eligible for crediting under the Carbon Farming Initiative.
However, forestry activities that are not currently common practice, for
example, longer rotation or low rainfall plantations, may be eligible under the
scheme.[19]

3.26The Forest Growers’ CEO Forum submission stated such a test is not
‘useful or practical’, because ‘all plantation forestry sequesters carbon.’[20]
It further suggested that:

To provide certainty that will maximise the maintenance of existing
plantation forests as well as the establishment of new plantations, plantation
forests need to be treated as automatically additional in the CFI and in the
future design of any carbon pricing mechanism.[21]

3.27Other opinions of the CFI suggest that additionality ‘may preclude a
broad range of commercial forestry projects for joint carbon and wood
production outcomes.’[22]

3.28Some farm foresters, such as Mr Rowan Reid, were concerned about how
additionality would be applied to farm forestry, arguing that establishing
large, single-purpose forests would exclude farm forestry:

Clearly through the government policy development process
concerns have been raised about the idea of having these large carbon forests
across the landscape—single-purpose forests—so various bodies have tried to
influence issues like additionality. You are not going to allow someone who is
planting for timber to get the carbon values or something. We are concerned
about any sort of single-purpose forest because it denies not only the common
sense model but also the opportunity for farmers to participate because they
will invariably want to balance risk and uncertainty by seeking various values.[23]

[...]

But simple strategies to encourage forests that deny opportunities
for multiple use is going to undermine the potential for many of us to be
involved.[24]

3.29It is possible that the question of additionality will be resolved in
time. As described by Mr Nick Roberts, of the Australian Forest Products
Association:

I think the issue about additionality with regard to carbon
is that the question would be: would you have planted the plantations with or
without the carbon? That is one of the questions and the hub of the
additionality question. It is certainly one which is very taxing. We are all
trying to understand that a little better in the context of the carbon tax
regime.[25]

Permanence

3.30Activities must also be considered ‘permanent’ to qualify under the CFI.
As set out by the CFI Explanatory Memorandum:

Carbon that has been removed from the atmosphere and stored
in plants and soils can be released back to the atmosphere. In order to be
genuinely equivalent to emissions (and therefore suitable offsets),
sequestration must be permanent.

Sequestration is generally regarded as permanent if it is
maintained on a net basis for around 100 years.[26]

3.31Evidence to the inquiry questioned whether the requirement of permanence
would preclude the harvesting of trees for timber or wood-products. The
Institute of Foresters of Australia submitted that:

The permanence obligation requires plantation growers to
commit to three successive sawlog rotations [approaching 100 years] with the
second and third rotations not generating any carbon income apart from that
which may in future be recognized for the carbon stored in the harvested wood
products. The permanence obligation is expected to be a major disincentive for
the farming sector whose investment horizons fall well short of 100 years.[27]

This is an important question, as young
trees sequester carbon more quickly than mature trees. With numerous rotations
of trees and careful accounting for carbon storage after harvesting, more
carbon could be sequestered than if only one rotation of trees was planted.

3.32The Committee heard that the issue of ‘permanence’ was also a concern
for farm foresters, as it denied them the flexibility to harvest and replant.
Various farm foresters expressed dissatisfaction with the CFI policy:[28]

It is one of the failures.[...] These things can be farmed;
you can pull trees out; they can be locked up in furniture; there are a lot of
other things that lock them up. What it should be saying is that these carbon
sinks, whatever you want to call them, should be managed. We do not recognise
that. We do not just say it is going to be there for 100 years. It is about
managing them. Maybe it is a legacy of how we have managed our forests in the
past, with clear-felling and things like that. [...] From a farm forestry
perspective, anyone I see who plants trees on their farm, particularly in these
low-rainfall areas, wants to manage it as an ongoing system. They do not want
to come in and just knock it all down. They will select the logs they need and
they will replant. [...] we have to develop something that is sustainable and
ongoing ...[29]

... we would want to harvest some of those trees within [our]
planting. We believe that we can harvest them on a sustainable basis in that
mosaic of time and space so that we maintain the integrity of the environment
and the values. If a saw log is halved and it gets locked up in tables and we
plant another tree in amongst that biodiverse planting and we support that new
tree we can get a sustainable system going.[30]

3.33As noted by a witness from the Department of Climate Change and Energy
Efficiency, the international rules about the carbon stored in timber and
wood-products are currently being negotiated:

As you are probably already aware, at the moment those
accounting rules treat emissions from harvested trees as if all the emissions
go into the atmosphere straightaway. For many years now we have been trying to
negotiate a much more sensible approach to accounting for harvested wood, in
particular to recognise that, as you say, significant quantities of wood wind
up in long-life wood products like this table.[31]

3.34Whilst this is a separate issue to the definition of ‘permanence’ under
the CFI, it is clear that there remains work to be done on the extent to which
timber and wood-products continue to store carbon after harvesting, as
discussed above.

Committee Comment

3.35To fully realise the opportunity for timber and wood products to replace
materials that have higher embodied energy, the Australian community must have
a better understanding of how wood compares to other materials. A public
information campaign would assist in ensuring that society is aware of the
benefits of timber and wood products in reducing energy use.

Recommendation 3

The Committee recommends the Australian Government run
public information campaigns to promote timber and wood products as
replacements for more energy-intensive materials.

3.37As noted above, there is an opportunity for the forestry industry to
benefit from the increased recognition of the carbon stored in timber and wood
products. However, there seems to be a lack of acknowledgment of the carbon
that is stored in wood products after harvesting. It is important that
Australia have robust national standards quantifying how much carbon is stored
in these products, and for what period of time. This would involve considerable
work but is important to the future of the forestry industry.

Recommendation 4

The Committee recommends the Australian Government develop
robust national standards quantifying the carbon stored in different products
made from harvested trees, including the duration of storage and policy
implications of those standards.

3.39The CFI requirements for permanence and additionality have the potential
to exclude support for plantations and farm forestry. The Committee is aware
that the CFI is a maturing policy, and that over time it will provide greater
recognition of the diversity of the forestry industry.

3.40The additionality requirement should be applied so that it recognises
the diversity of plantations and farm forestry applications, rather than
relying on generalised inclusions and exclusions. The permanence requirement
must be developed in such a way that it does not preclude the opportunity for
sustainable harvesting and replanting of plantations and farm forestry.

Recommendation 5

The Committee recommends the Australian Government, as it
develops a mature Carbon Farming Initiative regime, consider:

the capacity for ‘additionality’ to recognise the diversity of plantations and
farm forestry applications, rather than relying on generalised inclusions and
exclusions;

the capacity for ‘permanence’ to include the sustainable harvesting and
replanting of plantations and farm forestry; and

other ways for the CFI to support the forestry industry generally.

Committee
members attending a site inspection in the Styx Valley, Tasmania